Why Defi Lending? Evidence from Aave V2

53 Pages Posted: 30 Oct 2024

See all articles by Leonardo Gambacorta

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Giulio Cornelli

Bank for International Settlements (BIS)

Alessio Reghezza

European Central Bank (ECB)

Rodney Garratt

University of California, Santa Barbara (UCSB)

Abstract

Decentralised finance (DeFi) lending protocols have experienced significant growth recently, yet the motivations driving investors remain largely unexplored. We use granular, transaction-level data from Aave, a leading player in the DeFi lending market, to study these motivations. Our theoretical and empirical findings reveal that the search for yield predominantly drives liquidity provision in DeFi lending pools, whereas borrowing activity is mainly influenced by speculative and, to some extent, governance motives. Both retail and large investors seek potential high returns through market movements and price speculation, however the latter engage in DeFi borrowing relatively more than the former also to influence protocol decisions and accrue more significant governance rights.

Keywords: cryptocurrency, DeFi, decentralized finance, lending

Suggested Citation

Gambacorta, Leonardo and Cornelli, Giulio and Reghezza, Alessio and Garratt, Rodney, Why Defi Lending? Evidence from Aave V2. Available at SSRN: https://ssrn.com/abstract=5005228 or http://dx.doi.org/10.2139/ssrn.5005228

Leonardo Gambacorta (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Giulio Cornelli

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Alessio Reghezza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Rodney Garratt

University of California, Santa Barbara (UCSB) ( email )

South Hall 5504

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